Nearly all hospitals in 67 geographic regions throughout the US, including Boulder, Colorado; Los Angeles, California; Memphis, Tennessee; and New York, New York, will be required to participate in a bundled payment test for hip and knee replacements, and CMS has just finalized the rule.

The Comprehensive Care for Joint Replacement (CJR) Model targets hip and knee replacements, which are the most common inpatient surgery for Medicare beneficiaries. In 2014, more than 400,000 of these procedures cost more than $7 billion for the hospitalizations alone, and these surgeries can require length recovery and rehabilitation periods.

According to CMS, the average total Medicare expenditure for the surgery, hospitalization, and recovery can range from $16,500 to $33,000 across geographic areas.

Under the CJR model, the hospital that performs the surgery will be accountable for the costs and quality of related care for the episode of care, which is from the time of the surgery through 90 days after discharge. The hospital’s quality and cost performance during the episode will determine if the hospital earns a financial reward, or is required to pay Medicare for a portion of the spending above an established target—the latter of which will only begin during the second performance year.

The payment structure incentivizes better coordinated care so hospitals work with physicians, home health agencies, skilled nursing facilities, and other providers to ensure beneficiaries receive the care they need and avoidable hospitalizations and complications can are reduced.

“This model aims to improve the care experience for the many and growing numbers of Medicare beneficiaries who receive joint replacements, making the patient’s successful surgery and recovery a top priority for the health care system,” according to CMS.

Hospitals paid under the Inpatient Prospective Payment System that are physically located within one of the designated metropolitan statistical areas would be required to participate in the CJR model with the exception of hospitals already participating in Model 1 or Phase II of Models 2 or 4 of the Bundled Payments for Care Improvement initiative for hip and knee replacements. At this time there is no application process to join this model, so hospitals located outside of the chosen geographic regions are not able to participate.

“By focusing on episodes of care, rather than a piecemeal system, hospitals and physicians have an incentive to work together to deliver more effective and efficient care,” HHS Secretary Sylvia M. Burwell said in a statement in July, when the initiative was first proposed. “This model will incentivize providing patients with the right care the first time and finding better ways to help them recover successfully. It will reward providers and doctors for helping patients get and stay healthy. And it’s what we hear that many doctors and providers want – to be able to give the best care possible to their patients.”

The day after the final rule was released, the National Association of Accountable Care Organizations (NAACOS) released a statement that it was disappointed the final rule did not include an opportunity for Medicare ACOs to share in any savings and also provides no incentives for ACOs and CJR hospitals to partner. Meanwhile, other organizations, such as skilled nursing facilities and long-term care hospitals, were included in the rule.

"ACOs are facing a plethora of financial challenges under the current CMS rules and this decision only adds to their burdens," NAACOS CEO Clif Gaus said in a statement. "CMS has chosen to encourage the carve-out of joint replacement patients from the population health model on which ACO are founded."